The Impact of the Russia-Ukraine Conflict on the Global Economy
In February, Russia attacked Ukraine which was the largest conventional military attack since World War II and can cause a global economic catastrophe. While the graph of lives lost in this military conflict rises relentlessly, the means of higher prices of foods, oil, natural gas, and other essential addition to the all-around dread. Oil prices have crossed $`20 a barrel.
As we just started recovering from the COVID-19 pandemic, the global macroeconomic uncertainties have increased a lot due to this war. A challenging task for the central banks of different nations will be to strike a balance between managing the price hike and economic growth.
Russia and Ukraine are two of the biggest exporters of raw materials. But presently, Ukraine’s exports have been halted while Russia has become the most sanctioned country in the world. Western nations like the US have imposed major economic and other sanctions on Russia. Although Russia contributes just 1.7% percent of the total global output, it exports energy, which is crucial for many nations. Many European nations depend on Russia for their energy needs, which are supplied through a network of laid pipelines, passing through Ukraine. If the word continues, energy supplies to Europe may be blocked by Russia in the coming days.
A few days back finance minister Nirmala Sitharaman had shown concern about the effects of Russia’s invasion of Ukraine and she also mentioned that never has global peace had been affected this much since Word War-II. The ongoing Ukrainian crisis is set to push India’s import bills beyond the USD 600 billion mark this fiscal. Since India is dependent on crude oil, jewelry, natural gas, gems, fertilizers, and edible oils, it can lead to a rise in inflation and current account deficiency, and a falling rupee.
A consumption-driven economy like India Willis badly hit by the price hike, especially in fuel. India imports oil from Russia which is 2.8% of total imports. It imports 2.5 million tons of sunflower oil from Ukraine. India’s imports had been badly hit due to it.
India depends on imports to achieve its 85% crude oil needs. The increment in the global oil price to a 14-year high will now result in increased price pressures. It has become a tough task for India to maintain the balance as it cannot afford to spoil its relations with either of the two nations. The ramifications of the Russia-Ukraine war on the domestic economy will be highly felt through higher global commodity costs.
Experts say that the impact on the Indian economy will be mainly felt through higher cost-push inflation weighing on all economic agents including businesses, households, and governments. After watching the latest situation, India’s top lender SBI will not process any transactions involving Russian entities subject to global sanctions imposed on Russia.
Also, Indian Oil Corp said it would no longer accept cargoes of Russian crude and Kazakh CPC Blend cargoes on a free on board basis due to insurance risk. From 2016 to 2020, India accounted for over 25$ of total Russian arms exports according to the Stockholm International Peace Research Institute. It clearly shows the share of defense expenditure in India’s budget every year is no little.
In the 2022-23 union budget, India allocated around 70 billion on defense, it was almost 10% over the initial allocation in the previous year. In the coming years also, India will continue to rely on Russian weapons systems in the middle term despite the US’s threat of sanctions over 400 purchase looms large over India. With limitations on trade, the corporate sector according to the SBI report will have a negligible impact on the Russia-Ukraine conflict on India’s economy. The current situation may not continue for long but may lead to a transformation from a unipolar world order to a multipolar one.
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